The Obama Administration Moves To Crush Inversions

U.S. President Barack
Obama talks at the Democratic National Committee's annual Women's
Leadership Forum at the Marriott Marquis Hotel in Washington,
September 19, 2014.REUTERS/Larry
Downing

The Obama administration announced executive
steps on Monday to curb the
maneuver known as tax "inversions," by which companies slash
their tax bills by moving their companies' tax bases
overseas.

On a conference call with reporters Monday evening, Treasury
Secretary Jack Lew said the administration was taking executive
action since it had become clear Congress would not address the
issue this year. He said the steps would make companies "think
twice" about the maneuver.

"We’ve recently seen a few large corporations announce
plans to exploit this loophole, undercutting businesses that act
responsibly and leaving the middle class to pay the bill, and I’m
glad that Secretary Lew is exploring additional actions to help
reverse this trend," President Barack Obama said in a
statement.

The new regulations will go into effect immediately, senior
administration officials said Monday. Lew said on the call that
they are aimed at reducing the benefits of and, "when possible,"
stopping inversions.

The actions unveiled on Monday eliminate certain
techniques inverted companies currently use to gain tax-free
access to the deferred earnings of a foreign subsidiary, which
officials said would "significantly diminish" the ability of
inverted companies to avoid US taxation. The moves also erect
more barriers to inversion by strengthening a requirement in the
tax code that former owners of a US company own less than 80% of
the combined entity.

A sign welcoming President
Barack Obama is seen at a Burger King in Orefield, Pa., near
where President Barack Obama gave a speech, at Lehigh Carbon
Community College on Friday, Dec. 4, 2009.AP Images

So-called tax "inversions" have become a corporate trend
over the past year, as companies have either acquired rivals or
merged with them to relocate their headquarters to a foreign
country with lower corporate tax rates.

Democrats have sought to use the issue as fodder ahead of
November's midterm elections, but the issue has so far failed to
resonate with voters. It has been complicated by investors like Warren
Buffett, who is normally sympathetic to the Democratic
position on tax issues but whose company is providing financing
to complete the Burger King-Tim Hortons deal.

Republicans support addressing inversions but prefer to do it as
part of a broader overhaul of US corporate tax policy. In a
statement, a spokesman for House Speaker John Boehner blasted the
administration's executive move.

"Under President Obama, the United States has the highest
corporate tax rate in the developed world," said Michael Steel,
Boehner's spokesman. "The answer is to simplify and reform our
broken tax code to bring jobs home — and help grow our economy
and create even more American jobs."